I was sitting in on a meeting with my companies 401k administrator, we may be making some changes and the HR lady asked me to sit in.

In the course of conversation and reading over the 401k plan details I read that if you work until age 55 and retire you can get $ out of 401k's with out paying the IRS the 10% penalty (blood money). I must admit this caught me by suprise; I had always heard that you had to be 59 & 1/2.

They claim if the early distribution happens when my employment ends and I am 55 or older then no 10% penalty. If my employement ends at 54 or less then I must wait until 59 & 1/2 to avoid the penalty.

I still need to find out if I can take a partial w/d or if I need to take it all; obviously if I had to take it all I wouldn't want to get taxed on full amount all in one year.

__________________

__________________
"Up sluggard and waste not the day, in the grave will be sleeping enough." Benjamin Franklin

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

The rule has been in effect for quite some time. DH is separating from his company at age 55 in early 2012. It is the magic age for the earliest you can receive a pension, the earliest you can retire and get retiree medical, and the earliest to be able to withdraw from your 401k without the 10% penalty so 55 it is.

72t is used by anyone who retires before 59 1/2, you just need to commit to "substantially equal payments"............

__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)

I didn't mean to imply that a rollover is not allowed - certainly it is once you separate from the employer - but rather that taking distributions without the 10% penalty must be done from the 401(k) (or 403(b)). Caveat: I am by no means an expert.

I didn't mean to imply that a rollover is not allowed - certainly it is once you separate from the employer - but rather that taking distributions without the 10% penalty must be done from the 401(k) (or 403(b)). Caveat: I am by no means an expert.

That was understanding too, but now I am confused. Is anybody taking 72t early distributions at 55+ from an IRA (not 401(3)-K(b)) account?

__________________“The problem with the world is that the intelligent people are full of doubt, while the stupid people are full of confidence.”

I didn't mean to imply that a rollover is not allowed - certainly it is once you separate from the employer - but rather that taking distributions without the 10% penalty must be done from the 401(k) (or 403(b)). Caveat: I am by no means an expert.

If you're talking specifically about distributions, you're right. You can take a distribution from the 401K if you retire on or after 55. If you rollover to an IRA you must wait until 59 1/2 to avoid the penalty.

Excluding the 72t situation, the caveat on the 401K withdrawal is you can only take penalty free withdrawals from the company from which you retired on or after age 55, not a previous employer. Those monies would be subject to the 10% penalty.

If/When interest rates improve, we're moving our IRAs to a SPIA. Oh, I wish I had a crystal ball.

That was understanding too, but now I am confused. Is anybody taking 72t early distributions at 55+ from an IRA (not 401(3)-K(b)) account?

You can take distributions at any age from IRA via a 72(t). I am not 100% sure but I think that 72(t) distribution are only allowed from an IRA, not 401K, or a 403B.

The benefits from taking distribution from a 401K after 55 is you have more flexibility than 72(T) distributions. So for instance you can increase, decrease or completely eliminate withdrawals from a 401K, where as with 72(t) distribution from a IRA they are more or less a fixed amount. (With some exceptions.)

Excluding the 72t situation, the caveat on the 401K withdrawal is you can only take penalty free withdrawals from the company from which you retired on or after age 55, not a previous employer. Those monies would be subject to the 10% penalty.

Interesting. I did not know that. It does not apply to us though as DH has worked for the same company his entire career so only one 401k.

Excluding the 72t situation, the caveat on the 401K withdrawal is you can only take penalty free withdrawals from the company from which you retired on or after age 55, not a previous employer. Those monies would be subject to the 10% penalty.
.

Interesting......didn't know that either. Here's something from retireearly site
that agrees:

You can make penalty-free withdrawals from a 401(k) at age 55. You must wait until age 59 1/2 to make penalty-free withdrawals from an IRA. While this seems like a big break for a 55-year-old retiree, there are several things to consider; (1) Your employer must make it convenient for an ex-employee to make retirement withdrawals, many employers can't be bothered, (2) Rolling over your 401(k) funds to an IRA may increase the variety of investments available to you and lower your fees. If that's the case, the hassle of SEPP withdrawals from an IRA may be worth it.

Note: There is one fine point that many people miss in taking penalty-free withdrawals from a 401k at age 55. To do so, you must terminate your employment no earlier that the year in which you turn age 55. (See IRS Notice 87-13) If you retired at age 54 and waited until age 55 to make withdrawals from your 401k, you would not be able to make unlimited penalty-free withdrawals. You could only make penalty-free withdrawals by using SEPP.

I am a bit afraid of locking in to 72t substantial equal distributions. It will be nice to have the option of w/d from 401k before 59 & 1/2. Previously I had considered the option of w/d from Roth, but I really want to leave that alone as long as possible.

DW has 403b, anyone know for sure if age 55 rule is same for 403b?

__________________
"Up sluggard and waste not the day, in the grave will be sleeping enough." Benjamin Franklin

Some 401k plan administrators allow the regular distributions, and some don't. I don't think they are required by law to accomodate the age 55 withdrawals. By law, it's allowed, but I don't think individual plans are forced to accept the administrative burden if they don't want to. Meaning....yes it's legal to withdraw from your 401k if you retire at or after age 55, but your plan admin may or may not participate in that option.They have to be willing to do the accounting & bookeeping work. If not, then you might have to make other plans...IRA, 72t etc.

Latest Threads

Social Knowledge Community

About Us

This community was started in 2002 as an alternative to a then fee only Motley Fool. The focus of the discussions is on topics related to early retirement and financial independence. The community is moderated to ensure a pleasant experience for our members.